Roubini: Spain’s Exit From Eurozone Will Eventually Infect US

Spain will eventually exit the eurozone and the U.S. will feel some contagion, but it won't be an abrupt, crushing experience, says New York University economist Nouriel Roubini.

Concerns that Greece, sick of painful austerity measures that voters see as doing nothing for the economy, will default and abandon the euro are widespread.

Yet Spain, a much larger economy, will follow suit down the road and tap the European Commission, the European Central Bank and the International Monetary Fund, known is Europe as the troika, for rescue funding beforehand.

"I'm worried about Spain, but as I say, it's going to be slow motion. By the end of the year, Spain is going to lose market access, they're going to require a troika bailout and it's going to keep them out of the markets for a year or two. That's not going to work out."

So when will Spain leave?

"Maybe three years down the line then you have, of course, a restructuring of the debt," Roubini says.

"Eventually even Spain could exit the eurozone. It's not something that's going to happen in 12 months. That's why I think of it as being a slow motion process that is going to unravel over the next few years."

The U.S. could feel the heat.

"There is a risk of contagion. The trade links between Europe and the U.S. are modest but the financial links are important," Roubini says.

"In the spring of 2010 when there was the first Greek crisis, you had the correction of 20 percent of not only of European equity but of U.S. equity. Last summer when we had the worries about the eurozone problem spreading to Spain and Italy, it was a 20 percent correction in Europe and almost as much as a correction in emerging markets in the United States."

Next year, expect tepid growth in the U.S. even without a Spanish meltdown.

"Economic growth is going to (be below) 2 percent, the unemployment rate is high, job creation is going to be anemic," Roubini says.

"That's a problem that's going to get worse."

Spain is battling a massive financial crisis after the real estate bust battered its banking sector.

The government is set to demand banks to set aside the euro equivalent of $45 billion against loans tied to the ailing property sector, Reuters reports, quoting sources close to the deal as saying the likelihood of a bailout is growing.

"There's no way we can meet these provisions by ourselves — the whole sector would fall into losses," a bank source tells Reuters, who declined to be named.